How To Set Up Payroll for Small Business Owners

Figuring out how to set up payroll for small business owners can be difficult. Paying your employees in a timely manner is essential to keeping your business running smoothly and your employees happy.

Payroll can seem like a daunting task, no one wants to mess up their employees paycheck, but it doesn’t have to be. The steps to setting up payroll for a small business are:

Review the Department of Labor Website for your state
Sign up for Employer Identification Number (EIN)
Choose a payroll schedule
Have your employees fill out W-4 and I9 Forms
Calculate taxes
Pay payroll taxes and file tax forms

Continue reading our blog post to get a detailed explanation of each step in the process.

Six Steps on How To Set Up Payroll for Small Business Owners

Step 1: Review the Department of Labor Website for Your State

Each state has its own labor laws that you need to be familiar with to ensure you are in compliance with them. Reviewing the DOL website will let you know what posters you may need to have posted in your workplace and what policies you need to have in place. Some of the examples of signage you may need to have posted are:

Federal Minimum Wage
Family and Medical Leave Act
Occupational Safety and Health Act

This list continues. Go to the Department of Labor website to learn more about what types of posters you may have to visibly display. When reviewing the rules, be mindful that you are must follow both federal and state labor laws. You want to be in compliance with all regulations so as not to incur fines.

Step 2: Sign Up for Your Employer Identification Number

Signing up for an Employer Identification Number (EIN) is similar to a social security number, but for your business. This number is how the IRS will identify your business so that you can pay your employees. You should sign up to get your EIN as soon as you start your business because this number will be used on all your business forms and tax information. If you don’t have an EIN, don’t worry. You can go to the IRS website and receive it today.

Step 3: Choose a Payroll Schedule

You have flexibility in choosing how often you want to pay your employees. It could be weekly, every two weeks or monthly, the choice is yours. There are advantages to paying your employees weekly, namely that most employees prefer it. There are laws that determine how frequently you have to pay your employees, so be sure to be aware of those. Make sure that the schedule you choose is something you can achieve at the interval you’ve chosen. There can be serious fines and penalties for paying your employees late.

When setting up your payroll schedule, you also want to note tax payment due dates and tax filing deadlines in addition to employee pay dates.

Step 4: Have Your Employees Fill Out a W-4 and an I-9

A W-4 is how your employees will get paid. It’s essential that this form gets filled out so that you can be aware of any personal allowances they may have as well as track their filing status. W-4 forms also allow you to calculate proper tax withholding.

When filling out a W-4, employees should also fill out an I-9 form. This form verifies that your employees can legally work in this country. Both the W-4 and I-9 should be retained for your records and stored safely.

In this step you should also fill out a new hire report to document the new employee.

Step 5: Calculate Taxes

There are several taxes that you have to withhold and pay when running your business. You have to withhold local, state, and federal taxes from employee paychecks. To calculate federal taxes you can use the IRS Withholding Estimator. This tool will help you determine how much in federal taxes you will need to withhold from your employees checks. There are similar tools for state taxes, just be sure that the website you choose is trustworthy. Be mindful that you’re keeping track of these calculations as you go.

Step 6: Pay Payroll Taxes and File Tax Forms

This step is where you’ll pay the local, state, and federal taxes you withheld in step five. Normally this is done on a monthly basis, but check with the IRS to be sure you are paying at the correct time. While paying these taxes you’ll want to make sure that you are keeping track of the regulations associated with payment rates and reporting requirements.

Along with paying payroll taxes you must file the proper tax forms on a quarterly basis. You must file your federal employer tax return as well as state and local if applicable. While doing this you should also think about annual tax filings such as employee W-2s that are due at the end of the year. To learn more about payroll taxes and tax forms, visit us here.